Big News: Tax Official to target only Undisclosed Income in Search and Seizure Operations

The government has proposed an amendment to the Finance Act 2025 that clarifies that the tax department’s aim for search and seizure operations will be “total undisclosed income,” not “total income.”

The term ‘total income’ was used in the Finance Act 2024, which established a block assessment procedure for search and seizure cases. This has raised concerns among stakeholders that if taxpayers face search and seizure actions, even their declared income will be subject to punitive penalties.

“Now, the government has added the new term ‘total undisclosed income’ to clarify that the goal of search and seizure proceedings is to uncover and penalize only undisclosed income. This will offer taxpayers assurance regarding income that they already disclosed,” said a tax expert.

Section 143(1) has been amended to allow the Centralized Processing Centre to revise income tax returns based on irregularities with previous years’ filings, therefore increasing compliance control. Another tax expert believes that enabling automated inspections for inconsistencies will improve tax monitoring and reduce cases of tax evasion and misreporting.

Furthermore, a clarification in the newly introduced Section 44BBD, which provides a 25% presumptive income regime for electronics manufacturing, explicitly states that Sections 44DA and 115A do not apply, preventing disputes similar to those under Section 44BB regarding the rate of applicable income tax.

Among other proposed changes, Section 9A, which deals with fund managers in India of offshore funds, has been simplified by changing one of the restrictions that more than 5% of the corpus shall not be participated in or invested in by Indian residents.

This applies whether the 5% is owned directly or indirectly, but the requirement to own it indirectly has been abolished, according to an tax expert. Furthermore, under the provisions of the Finance Bill, 2025, the abovementioned condition was removed from the Central Government’s authority to make any changes through a notification or otherwise, but it has been restored.